Small-cap stocks in the Russell 2000 index are experiencing real earnings growth after a year of strong performance, with a 3% price return in September driven by upwardly revised earnings expectations. Value-oriented small caps were the biggest winners, outperforming the index by 2.5%.

Analysts raised earnings forecasts for companies like Marcus Corporation as the small-cap index hit an all-time high. Small-cap stocks overall were up 12.4% in the third quarter, their best since 2021, offering investors a discount compared to large-cap stocks.

The Federal Reserve’s decision to cut rates proved beneficial for small-cap stocks, with lower rates meaning cheaper financing and better margins for companies. Traders are pricing a 92.5% chance of another quarter-point cut in October, which could further boost small-cap stocks.

The Russell 2000 has traditionally lagged behind the S&P 500 due to Big Tech dominance, but small-cap tickers are trading at a discount compared to large-cap stocks. Goldman Sachs Asset Management sees an abundance of opportunities in the small-cap market for active investors.

When the Russell 2000 hit a new high, it ended a 967-trading-day streak without one. The index has underperformed for over a decade, but experts believe it is now setting up for a cycle of outperformance, with potential for growth amid Fed rate cuts.

Read more at finance.yahoo.com: Why small-cap stocks are starting to see earnings growth after best quarter since 2021